Coles chief hits out at Coke

Coles managing director
Ian McLeod
has singled out
Coca-Cola Amatil
as part of an attack on multinational suppliers, saying Australian consumers are still paying too much for groceries.

Mr McLeod is demanding lower prices from suppliers as retailers finalise a voluntary code of conduct for dealing with manufacturers. “In Asia I see Coca-Cola selling for one-third the price in Australia – that raises another question mark," Mr McLeod told Financial Review Sunday on Channel Nine. “When it’s 60 per cent cheaper then you start to question why it should be so much more in Australia. And those are the challenges that we will then put back to the suppliers and say why is this? Why can’t we get a better price, give a better price to the Australian customer," Mr McLeod said.

In an interview marking his fifth anniversary at the helm of Coles, Mr McLeod also hosed down the ACCC’s concerns that supermarkets were bullying suppliers and rejected suggestions that in a low-growth market, Coles’ growth could only come at the expense of independent grocers.

But manufacturers were his biggest target. He highlighted that Australian products such as wine were selling overseas at a discount to local prices while the local price for staples such as shampoo and soft drinks was often two or three times the retail price for similar products overseas. “You can take wine from Australia to the other end of the world and sell it at a lower retail price – that causes me to question the price being charged here," Mr McLeod said.

Complaints on pricing triggered ACCC inquiry

CCA chief
Terry Davis
declined to comment, but Coles’ criticism of suppliers could inflame relations at a critical point in negotiations over a voluntary code of conduct. While some industry players suggest that a mandatory code is inevitable, Mr McLeod warned against it. “If you are not careful prices could go up on the back of it. It adds the risk of an administrative burden, it could mean it takes away the negotiating position of one party or another and therefore we are not able to negotiate the best deal for the customer," he said.

Five years ago, when Mr McLeod first arrived from the UK to lead the turnaround at Coles, consumers were complaining they were paying too much for their groceries, triggering an ACCC inquiry.

“Those criticisms were being levelled at the supermarkets, they weren’t being levelled at the suppliers," Mr McLeod said. “When we came in and we had a look at what prices were in Australia relative to the prices that were being charged in other countries, we could see difference in price," he said. “There may be a reason for those differences in price, but you have to question and challenge some of them when you see them."

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His concerns over multinational suppliers’ conduct echoed those last week by
Woolworths
, which said that Australian wholesale prices for products such as toothpaste and deodorant were sometimes 25 to 40 per cent higher than the retail price for identical products in the US and UK.

When Woolworths started sourcing Australian-made deodorant from an agent in Singapore for 60 to 75 per cent of the local list or wholesale price, it claims the manufacturer, Unilever Australasia, shut down the source of supply rather than negotiate over-pricing. Unilever has denied Woolworths’ claim and has reported the matter to the Australian Competition and Consumer Commission.

Mr McLeod said Coles had experimented with parallel importing but said it would never be at the core of Coles’ business. “Coles is too large to be distracted excessively by parallel importing, but it gives us interesting benchmarks," he said. “We had a major Australian product we did parallel import through a grey trader and the cost price we got was one-third less than we could buy direct." “There are benchmarks we’ve seen that would indicate there are better cost prices available and it’s our duty to Australian customers to make sure we challenge that. We will challenge but we’ll negotiate."

The Coles boss repeated claims that many multinational grocery suppliers were making higher returns in Australia than they were making overseas. “Some suppliers if you ask them honestly they’re making more profitable returns from their business in Australia than they might do in other markets," he said. “Our job, our responsibility, is to make sure we get the best price we can to the customer."

But Mr McLeod hit back. “No, we’re not bullies at all," he said. Coles’ relationships with suppliers have improved markedly in recent years. In a survey Coles commissioned in 2008, it was rated 14th out of 15 retailers by suppliers. In a recent survey, it was ranked in the top four out of 16.

The retailer is also signing direct ­supply agreements with suppliers in milk, meat and produce to remove ­supply chain costs and share volume benefits with suppliers and customers.

He said Coles could co-exist with smaller retailers. “The corner shop will always have its place, the convenience store will always have its place . . . independent butchers, bakers and greengrocers, they continue to open and continue to thrive," he said.

“As supermarket retailers we’d love to be able to do everything but we can’t. It’s important that everyone realises where their niche lies and co-exist as a result."

While much has been achieved in his five years at Coles – sales have risen 30 per cent, earnings before interest and tax have almost doubled and margins have risen from 3.6 to 4.6 per cent – the 54-year-old former Asda executive says there is much more work to do.

“We are nowhere near finished yet," he said. “The first five years it’s been about building a solid foundation to get us back to where we were match fit and compete more effectively in this ­market. We are only halfway through the renewal program of refurbishing stores, there are lots of new categories we can evolve and develop, bring new products to market and satisfy our customers."

Mr McLeod renegotiated his initial five-year contract with Wesfarmers last May and from June this year will be on a rolling annual deal, but he played down speculation he may return to the UK in the next year or two. “I’m very happy doing what I’m doing, I have no intention of leaving any time soon."